TMCnet News
DATA STORAGE CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) The information contained in Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report. Company Overview Data Storage Corporation, ("DSC" or the "Company") is the result of several consolidations and is strategically positioned to continue its consolidation strategy. To date, DSC consummated (i) a share exchange with Euro Trend Inc. in October 20, 2008, (ii) an asset acquisition of SafeData, LLC ("SafeData") in June 2010, and (iii) an asset acquisition of Message Logic LLC, ("Message Logic") in October 2012. On October 20, 2008 the Company completed a share exchange agreement whereby we acquired all of the outstanding capital stock and ownership interests of DSC. In exchange we issued 13,357,143 shares of our common stock to the shareholders. This transaction was accounted for as a reverse merger for accounting purposes. Accordingly, DSC, the accounting acquirer, is regarded as the predecessor entity. On June 17, 2010 we entered into an asset purchase agreement with SafeData, a provider of Cloud Storage and Cloud Computing mostly to IBM's mid-range equipment users, under which we acquired all right, title and interest in the end user customer base of SafeData and all related current and fixed assets and contracts including the transfer of all of SafeData's current liabilities arising out of the business or the assets acquired. Pursuant to the Agreement, we paid an aggregate purchase price equal to $3,000,000. Giving effect to certain holdback and contingency clauses as defined in the agreement, we paid $1,229,952 in cash and $850,000 in shares of our common stock as well as assumption of SafeData accounts payable and receivables. In June of 2011 we made a final payment net of holdback of $482,308 and we issued the remaining balance of $150,000 in Common Stock. The final settlement resulted in a gain of $176,497. On October 31, 2012, DSC purchased the assets of Message Logic including email compliance software all source code to Message Logic's email archival and data analytics software and select fixed assets. In exchange for the assets, at closing, DSC gave 725,960 shares of it's common stock and assumed liabilities of $102,109. The contingent purchase price provides for up to 769,290 additional shares of DSC common stock and $800,000. This contingent purchase price is based upon the achievement of certain metrics at the end of the 7th, 13th 19th and 25th months as defined in the asset purchase agreement dated October 31, 2012. In November 2012, DSC entered into a joint venture partnership with an IBM partner, ABC Services Inc. to provide an IBM Infrastructure as a service ("IaaS") offering, marketed under the name Aegis, a New York LLC. In November 2012, DSC also entered into agreements with Amazon AWS to offer its Message Logic email archiving software through the AWS marketplace and to offer stand-by-server and storage solutions. In November 2012, DSC also entered into an agreement with Dell for distribution of its Message Logic email archiving solution. In December 2012, DSC was accepted as an IBM Service provider for cloud solutions. The result of these acquisitions, joint venture and strategic alliances combined with DSC's legacy disaster recovery and business continuity solutions positions DSC as a potential leader in business to business cloud storage and cloud computing sector specializing in email compliance Software as a Service (SaaS), Windows Infrastructure as a Service (IaaS) and IBM iSeries Platform as a Service (PaaS). DSC will continue to provide our solutions and continue our planned industry consolidations. DSC, an 11 year veteran in cloud storage and cloud computing solutions, provides data protection, disaster recovery, business continuity and compliance solutions that assist organizations in protecting their data, minimizing downtime and ensuring regulatory compliance. Serving the rapidly emerging business continuity market, DSC's clients save time and money, gain more control and better access to data and enable high level of security for that data. Solutions include: IaaS, data backup, recovery and restore, high availability data replication services; email archive and compliance solutions for e-discovery; continuous data protection; data de-duplication; and virtualized system recovery. DSC has forged relationships for distribution with Dell, Amazon and IBM among others. Headquartered in Garden City, N.Y., DSC offers its solutions and services to businesses within the healthcare, banking and finance, distribution services, manufacturing, construction, education, and government industries.. 13 --------------------------------------------------------------------------------DSC derives revenues from long term subscription services and professional services related to implementation of subscription services that provide businesses in the education, government and healthcare industries protection of critical computerized data. In 2009 revenues consisted primarily of offsite data backup, de-duplication, continuous data protection, Cloud Disaster Recovery solutions and Electronic Medical Records, protecting information for our clients. In 2010 we expanded our solutions based on the asset acquisition of SafeData. In 2012 we continued to assimilate organizations, expanded our technology as well as technical group and positioned the new organization for growth. In October 2012 we purchased the software and assets of Message Logic. DSC has equipment for cloud storage and cloud computing in our data centers in Massachusetts, Rhode Island, and New York. We deliver our solutions over highly reliable, redundant and secure fiber optic networks with separate and diverse routes to the Internet. The network and geographical diversity is important to clients seeking storage hosting and disaster recovery solutions, ensuring protection of data and continuity of business in the case of a network interruption. DSC is in the position today to leverage our infrastructure, data center, equipment capacity and leadership team to grow revenue to significant levels. Positioned for organic growth, although a strategy will be to grow through acquisition of similar solutions such as data vaulting, cloud recovery services, disaster recovery and business continuity solutions, e-discovery and IaaS companies. DSC believes opportunities exist to acquire synergistic service providers to enhance our products and services portfolio, increase our distribution channels, expand our management and increase our cash flow. Our objective is to reduce costs through economies of scale while increasing market share and consolidating efforts. We believe that through a strategy of increasing our direct sales force and partnership program as well as acquisition of synergistic services providers we can create significant value. RESULTS OF OPERATIONS For the three months ended March 31, 2013 as compared to March 31, 2012. Net Sales. Net sales for the three months ended March 31, 2013 were $1,176,178 an increase of $205,779 or 21.2%, compared to $970,399 for the three months ended March 31, 2012. The increase in sales is the result of an increase in recurring sales revenues of $252,409 to $1,145,049 for the three months ended March 31, 2013 from $892,556 for the three months ended March 31, 2012, offset by a decrease of in non-recurring revenue of $51,636 to $30,224 for the three months ended March 31, 2013 from $81,881 for the three months ended March 31, 2012. Cost of Sales. For the three months ended March 31, 2013, cost of sales were $727,114 an increase of $142,122 from $584,992 for the three months ended March 31, 2012 The increase in cost of sales is directly attributable to the increase in recurring sales which have a higher cost of sale than non-recurring sales which are typically generated from fixed labor costs. DSC's gross margin is 38.2 % for the three months ended March 31, 2013 as compared to 39.7 % for the three months ended March 31, 2012. Operating Expenses. For the three months ended March 31, 2013, operating expenses were $721,395, a decrease of $178,178, as compared to $899,573 for the three months ended March 31,2012. The majority of the decrease in operating expenses for the three months ended March 31, 2012 is a result of decrease in salaries and professional fees. Professional fees decreased $62,686 to $32,677 for the three month ended March 31, 2013 as compared to $98,962 for the three months ended March 31, 2012. Sales salaries decreased $78,212 to $138,962 for the three months ended March 31, 2013, as compared to $217,174 for the three months ended March 31, 2012. Executive salaries expense increased $46,438 to $94,745 as compared to $48,307 for the three months ended March 31, 2013 and 2012. Sales commission expense decreased $41,438 to $13,714, as compared to $55,152 for the three months ended March 31, 2013 and 2012. This is a result of more new sales being generated by internal sales force that are paid by salary as opposed to new sales by partners. Other Expenses. Interest income for the three months ended March 31, 2013 decreased $71 to $11 from $82 for the three months ended March 31, 2012. Interest Expense for the three months ended March 31, 2013 decreased $5,004 to $31,773 from $36,777 for the three months ended March 31, 2013. Net Loss. Net loss for the three months ended March 31, 2013 was ($304,093) a decrease of $246,768 as compared to net loss of ($550,861) for the three months ended March 31, 2012. LIQUIDITY AND CAPITAL RESOURCES The financial statements have been prepared using accounting principles generally accepted in the United States of America applicable for a going concern, which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. The Company has been funded by Mr. Charles M. Piluso, the Company's Chief Executive Officer and largest shareholder combined with private placements of the Company's stock. The Company has been successful in raising money as needed. Further it is the intention of management to continue to raise money through stock issuances and to fund the Company on an as needed basis. During the remainder of 2013, we intend to continue to work to increase our presence in the IBM marketplace utilizing our increased technical expertise, capacity for data storage and managed services with our asset acquisition of SafeData. 14 --------------------------------------------------------------------------------To the extent we are successful in growing our business, identifying potential acquisition targets and negotiating the terms of such acquisition, and the purchase price includes a cash component, we plan to use our working capital and the proceeds of any financing to finance such acquisition costs. Our opinion concerning our liquidity is based on current information. If this information proves to be inaccurate, or if circumstances change, we may not be able to meet our liquidity needs. During the three months ended March 31, 2013 DSC's cash increased $11,298 to $84,054 from $72,756 at March 31, 2012. Net cash of $65,027 was used in DSC's operating activities. Net cash of $76,325 was provided by DSC's financing activities. This is the result of a $100,000 convertible debt issuance, $7,847 in advances from a company shareholder offset by $28,417 in capital lease payments. DSC's working capital deficit was ($3,168,715) March 31, 2013, increasing $104,508 from ($3,064,207) at December 31, 2012. The increase is primarily due to the issuance of convertible debt. |